Wednesday, February 16, 2011

Trade of the Day: AAPL March $335/$340 put bull vertical

The trade

A trader sold 4,000 March $340 puts at $2.22 and bought 4,000 March $335 puts at $1.72 for a credit of $0.50 or $200,000.

Risk/Reward

As you can see from the graph above, the bull vertical has limited risk and limited profit potential. The max risk of the bull vertical is $1,800,000. The max gain is the credit received. The break even underlying price level is $339.50.

The line shown in the chart above is the break even underlying price of $339.50. The bull vertical is profitable as long as the underlying price is above the break even. The 52-week range for AAPL is a low of $195.71 and a high of $364.90. AAPL has a higher P/E ratio, Price-to-book ratio, and Price-to-sales ration than it's competitors HPQ, MSFT, and DELL.

Followers

This is trade analysis, not a recommendation.

Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

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